Protecting the Video Game Protecting the Video Game Industry’s Value Creation Industry’s Value Creation

and Growthand Growth

Michael D. Gallagher - President Michael D. Gallagher - President and CEOand CEO

Entertainment Software Entertainment Software Association (ESA)Association (ESA)

Game Industry RoundtableGame Industry RoundtablePerkins Coie, LLPPerkins Coie, LLP

April 24, 2008April 24, 2008

The Entertainment The Entertainment Software Association Software Association

(ESA)(ESA) ESA is the U.S. ESA is the U.S.

association association representing representing publishers of publishers of computer and video computer and video gamesgames

Our members include Our members include some of the biggest some of the biggest names in names in entertainment, entertainment, consumer electronics, consumer electronics, and technologyand technology

The Entertainment The Entertainment Software IndustrySoftware Industry

$31.6 billion in global revenue in 2006, $31.6 billion in global revenue in 2006, projected to grow to $48.8 billion by projected to grow to $48.8 billion by 20112011

Typical video game company generates Typical video game company generates approximately 40% total revenue from approximately 40% total revenue from worldwide exportsworldwide exports

Video games fuse movies, music, Video games fuse movies, music, literature—all while actors, writers, literature—all while actors, writers, directors and animators migrate directors and animators migrate between artistic mediumsbetween artistic mediums

Industry SalesIndustry Sales

Industry growth Industry growth for 2008 is up for 2008 is up 27% over last 27% over last year, which was year, which was record-breakingrecord-breaking

Sales were up Sales were up 43%43% year over year from year over year from 2006 to 2007, 2006 to 2007, totaling more than totaling more than $18.5 billion$18.5 billion

2007 US sales of 2007 US sales of video game video game software and software and hardware. Since hardware. Since 1996, industry 1996, industry revenue growth revenue growth has tripledhas tripled

Hits-Driven IndustryHits-Driven Industry

Halo 3Halo 3 generated generated more revenue in more revenue in its first 24 hours its first 24 hours than:than: Harry Potter and Harry Potter and

the Deathly the Deathly HallowsHallows did in its did in its first day; first day; and and more thanmore than, ,

Spider-Man 3Spider-Man 3’s ’s entire opening entire opening weekendweekend

Source: CNET News, “Microsoft: 'Halo 3' nets biggest day in entertainment history,” Daniel Terdiman, 9/26/07.

140

145

150

155

160

165

170

First Day Sales (in millions)

Halo 3

Harry Potter -Deathly HallowsSpider-Man 3

Software (VG and PC) Software (VG and PC) Growth Following Growth Following

Hardware LaunchesHardware LaunchesSoftwareSoftware 20012001 20022002 20032003 20042004 20052005 20062006 20072007

Total Total UnitsUnits 7%7% 7%7% 7%7% 4%4% -8%-8% 5%5% 11%11%

TotalTotal

RevenueRevenue9%9% 14%14% 1%1% 4%4% -4%-4% 6%6% 28%28%

Industry MergersIndustry Mergers

Activision/Vivendi Merger*Activision/Vivendi Merger* $18.9 billion deal, creating $18.9 billion deal, creating

world's largest independent world's largest independent video game publisher video game publisher

EA/Take Two Hostile EA/Take Two Hostile Takeover**Takeover** $2B Offer--$26.00/share$2B Offer--$26.00/share Federal Trade Commission Federal Trade Commission

Could ReviewCould Review Take-Two Shareholder Take-Two Shareholder

MeetingMeeting*SOURCE: Business Week, 12/2/07** Newsweek, 3/31/08

Economic Impact of Economic Impact of GamesGames

The annual growth rate of the US video The annual growth rate of the US video game industry exceeded 17.0% from 2003-game industry exceeded 17.0% from 2003-2006. During the same years, real growth 2006. During the same years, real growth for the US economy as a whole was below for the US economy as a whole was below 4.0%4.0%

Industry exceeds average growth rate of Industry exceeds average growth rate of the US economy by 4:1 ratiothe US economy by 4:1 ratio

Value added to US GDP was $3.8 billion in Value added to US GDP was $3.8 billion in 20062006

80,000 employees (direct and indirect) with 80,000 employees (direct and indirect) with $92,368 average compensation per direct $92,368 average compensation per direct industry employee, totaling $2.2 billionindustry employee, totaling $2.2 billion

4.4% annual video game industry direct 4.4% annual video game industry direct employment growth rateemployment growth rate

Breaking Down the GlobeBreaking Down the Globe

The video game The video game market in the US, market in the US, EMEA, Asia Pacific, EMEA, Asia Pacific, Latin America, and Latin America, and Canada will Canada will increase from increase from $31.6 billion in $31.6 billion in 2006 to $48.9 2006 to $48.9 billion in 2011, a billion in 2011, a 9.1% compound 9.1% compound annual rateannual rate 0

2468

101214161820

2011 Projected Sales (in billions)

Asia PacificEMEAUS

CanadaLatAm

Tapping Broadband Tapping Broadband Growth:Growth:

Video Games Online - Video Games Online - SubscribersSubscribers Regional growth in number of subscribersRegional growth in number of subscribers

United StatesUnited States: 8 million in 2006 and will grow to 22.2 million : 8 million in 2006 and will grow to 22.2 million by 2011by 2011

Europe, Middle East, AfricaEurope, Middle East, Africa: 7.5 million in 2006 and will grow : 7.5 million in 2006 and will grow to 24.9 million by 2011to 24.9 million by 2011

Asia PacificAsia Pacific: 25 million in 2006 and will grow to 62 million by : 25 million in 2006 and will grow to 62 million by 20112011

Note: 2006 figures are preliminaryChart based upon data from PricewaterhouseCoopers’ Global Entertainment & Media Outlook: 2007-2011

Tapping Broadband Tapping Broadband Growth: Growth:

Video Games Online - Video Games Online - SpendingSpending Regional growth in consumer spending outlaysRegional growth in consumer spending outlays

United StatesUnited States: $1.1 billion in 2006 and will grow to $2.7 billion : $1.1 billion in 2006 and will grow to $2.7 billion by 2011by 2011

Europe, Middle East, AfricaEurope, Middle East, Africa: $1.2 billion in 2006 and will grow : $1.2 billion in 2006 and will grow to $3.6 billion by 2011to $3.6 billion by 2011

Asia PacificAsia Pacific: $2.5 billion in 2006 and will grow to $5.2 billion : $2.5 billion in 2006 and will grow to $5.2 billion by 2011by 2011

Note: 2006 figures are preliminaryChart based upon data from PricewaterhouseCoopers’ Global Entertainment and Media Outlook: 2007-2011